Richard Green is a professor in the Sol Price School of Public Policy and the Marshall School of Business at the University of Southern California.
This blog will feature commentary on the current state of housing, commercial real estate, mortgage finance, and urban development around the world. It may also at times have ruminations about graduate business education.

Thursday, August 04, 2016

Heather Schwartz, Raphael Bostic and I write about renting in NOLA

...Between 2000 and 2014, our analysis— which we performed for the John D. and Catherine T. MacArthur Foundation when evaluating their 20-year affordable rental housing preservation initiative — shows that rental affordability has gotten substantially worse in virtually every major metro area. That is not just the case for the lowest-income households. It's no longer a New York City and San Francisco problem; rents are unaffordable in Cleveland, Miami and Portland, too.

Take a family who lives in the New Orleans metro area that earned $10,672 as of 2011. Such a family had earnings in the bottom fifth of the renter income distribution in that region. This hypothetical family would have to spend 67 percent of its income to rent a home that is itself in the bottom fifth of New Orleans's rent distribution. In fact, families like this in the bottom fifth of the income distribution would have to spend more than 30 percent of their income to rent a perfectly matched home that has rent at the bottom fifth of the rent distribution in 280 out of 283 metro areas. The only metro areas where such a family would find affordable rental housing are Decatur, Ala.; Houma, La.; and Johnstown, Pa., which are all small metros.

And the problem is not just for that family at the bottom fifth. To continue with the New Orleans example, we found that families earning at the 40th percentile (e.g., $21,344) and 60th percentile (e.g., $35,574) also would have to spend far more than 30 percent of their incomes to rent homes at the corresponding point in the rental distribution. And this is not unique to New Orleans — in about one-third of metropolitan areas in the United States, renters at the 60th percentile must spend more than 30 percent of income to obtain housing at the 60th percentile of the rental distribution....

2 comments:

That's an astounding result in the distribution details. The median income and rent problem has been known for a while, but the rest, wow.

One wonders what is the mechanism for market failure here, as it seems it would be relatively easy to subdivide for new low rent supply, or that carrying costs for withheld properties would eventually pull supply onto the market.

"A North Beach [San Francisco] tenant recently received notice from his landlord that the rent on his apartment was going up from $1,800 a month to $8,000."

"Neil Hutchinson, who has lived in the building at Columbus and Scotland streets for six years, has been hit with a rent increase of 344 percent."http://www.sfgate.com/news/article/San-Francisco-rent-increase-North-Beach-tenant-400-8325864.php

" MANHATTAN — The city’s rent-stabilized tenants will once again see a rent freeze on one-year leases."

"The Rent Guidelines Board voted Monday night against any increases on one-year leases and voted for a 2 percent increase on two-year leases, marking a repeat of its vote last year, which was the first time ever the board approved a rent freeze."https://www.dnainfo.com/new-york/20160628/east-village/some-rent-stabilized-tenants-see-rent-freeze-for-second-year-row?utm_source=Manhattan&utm_campaign=5987e5d57c-Mailchimp-NYC&utm_medium=email&utm_term=0_7456974fe2-5987e5d57c-132509985

Strikes me that when rents double and triple, the same money could be going to build twice and three times as much housing instead of uselessly lining the landlords’ pockets (I think economists call this collecting rents).

Part of the solution, besides easing up on zoning like Seattle or happening to have plenty of land to extend construction to like Houston, might simply be a working market-realistic version of rent control like Germany and Paris and many Euro places (Singapore housing is 80% public I think).

Main idea: if landlords want to cash in on demand they will have to build to profit by it. Help; before we are all forced to move to Mexico!